Official Development Aid is aid from governments, which can take the form of either bilateral aid – direct from donor country to recipient country, or multilateral aid, which is channelled through institutions such as the World Bank.
The value of Official Development Aid is much greater than aid channelled through non-governmental organisations such as Oxfam, and so has the potential to have a much greater impact.
Aid hasn’t generated economic growth in many recipient countries
The most vociferous recent critiques of Official Development Aid comes in the form of Dambisa Moyo’s recent book (2009) Dead Aid: Why Aid is not Working And How there is another way for Africa. At root, her most basic criticism is that Official Development Aid hasn’t actually generated significant economic growth in recipient countries. According to Moyo
‘Over the past thirty years, the most aid-dependent countries have exhibited growth rates of minus 0.2% per annum. Looked at as a whole, Africa has had over $1 trillion dollars of aid money pumped into it over the last 60 years and not much good to show for it.’
Aid stifles the development of small businesses.
Moyo explains how this works as below…..
‘There’s a mosquito net maker in Africa. He manufactures around 500 nets a week. He employs 10 people, who each have to support upwards of 15 relatives. However hard they work, they cannot make enough nets to combat the malaria-carrying mosquito.
Enter vociferous Hollywood movie star who rallies the masses, and goads Western governments to collect and send 100, 000 mosquito nets to the affected region, at a cost of $1 million, The nets arrive, the nets are distributed and a good deed is done.
With the market flooded with foreign nets, however, our mosquito net maker is promptly out of business. His ten workers can no longer support their dependents.
Now think of what happens 5 years down the line when the mosquito nets are torn and beyond repair, we have now mosquito nets, and no local industry to build any more. The long term effect of the ‘aid injection’ has been to decimate the local economy and make the local population dependent on foreign aid from abroad.
Aid Encourages Corruption
In 2004 the British envoy to Kenya, Sir Edward Clay, complained about rampant corruption in the country, commenting that Kenya’s corrupt ministers were ‘eating like gluttons’ and vomiting on the shoes of foreign donors. In February 2005 (prodded to make a public apology), he apologised, saying he was sorry for the ‘moderation’ of his language, for underestimating the scale of the looting and for failing to speak out earlier
According to Dambisa Moyo – If the world has one image of African statesmen, it is one of rank corruption on a stupendous scale. One of the best examples of this is Mobutu, who is estimated to have looted Zaire to the tune of $5 billion. He is also famous for leasing Concorde to fly his daughter to her wedding in the Ivory Coast shortly after negotiating a lucrative aid deal with Ronald Regan in the 1980s.
Moyo further argues that at least 25% of World Bank Aid is misused. One of the worst examples is in Uganda in the 1990s – where it is estimated that only 20% of government spending on education actually made it to local primary schools.
Moyo argues that growth cannot occur in an environment where corruption is rife. There are any number of ways in which corruption can retard growth.
Corruption leads to worse development projects – corrupt government officials award contracts to those who collude in corruption rather than the best people for the job. This results in lower-quality infrastructure projects.
Foreign companies will not invest in countries where corrupt officials might siphon off investment money for themselves rather than actually investing that money in the country’s future.
Aid is corrosive in that it encourages exceptionally talented people to become unprincipled – putting their efforts into attracting and siphoning off aid rather than focussing on being good politicians or entrepreneurs.
Too much aid money is spent on salaries, admin fees and conferences
Not only are these often secretive and not open to account, but this also means reduced money spent on actual development. The aid industry employs hundreds of thousands of people worldwide. For example, in the UK DEFA spent £248 million on administration in 2007/08. This has led to some referring to aid agencies as the lords of poverty – ironically, it is actually in the interests of these bureacractic agencies for poverty to exist, or thousands of people would be out of work.
Dependency theory argues there is a political agenda to aid
The allocation of US and UK aid has often depended on whether the political ideology of the developing country has met with Western Approval. Dependency theorists argue that the main point of aid is to make the recipients dependent on the donors. Many neo-marixsts argue that along with aid packages comes western values, advice, culture, and aid merely ensures that the interests of west are maintained.
During the cold war developing countries were rewarded with aid if they aligned themselves with the Capitalist west and against the Socialist regimes of Eastern Europe and China. Both the UK and U.S. governments refused aid to the Ethiopian government in the early 80s on the grounds that the government was Socialist.
A similar focus is also found in US military aid. Much military aid was sent to South America where it was used by right wing governments to repress socialist movements that were opposed to the interests of US multinationals.
Even with the fall of the cold war, countries are still rewarded for promoting western interests. Kenya was rewarded in 1991 for providing the US with port facilities during the gulf war while Turkey was denied US aid for not allowing them to lease its air bases.
In 2005 developing nations were rewarded for assisting the Bush regime’s war on terror.
NB Tied aid is now illegal in the UK by virtue of the International Development Act, which came into force on 17 June 2002. Other countries, however, still only provide aid on the basis that a proportion of the aid money is spent on products produced by the donor country.
The World Bank aid has traditionally required countries to undertake ‘Structural Readjustment Policies’ (SAPs)
The World Bank and International Monetary Fund (IMF) are the largest and most influential of the International Financial Institutions (IFIs), and these have pursued a neoliberal development agenda since the 1980s. The damaging strings that the World Bank & IMF attach to aid, loans and debt relief often make it more difficult for poor countries to effectively tackle poverty. These strings often force poor countries to undertake Structural Adjustment Programmes – cut vital spending on health and education, or to privatise their public services, which provide opportunities for international companies to take these services over. Tanzania, Guyana and Bolivia have all been told that they must privatize their water supplies in order to get millions of pounds in aid from the world bank[1][2]
Top down aid is often irrelevant to the countries receiving it!
Much Official Development aid has focused on monstrous projects such as the building of dams and roads which have sapped local initiative harmed the environment and lead to social injustices[3].
Focusing on aid for developing countries suggests that recipients are helpless.
Live Sid Yasmin Aibhai- Brown argues that concerts such as Live Aid perpetuate the idea of Africa as a helpless continent incapable of helping itself, whereas the opposite is actually true. [4]
Dependency theorists argue poor countries are often dependent on low value primary products for export, which the West then adds value to!
Andre Gunder Frank (1971) argues that the reason trade doesn’t work for poor countries is a legacy of colonialism – before independence, the colonising power simply took these commodities. After independence, developing societies are often still over-dependent on exporting these primary commodities, which typically have a very low market-value, and rich countries are happy to keep things this way because this enables them to stay rich.
Four reasons why free trade doesn’t always promote development
Dependency Theorists point to at least the following reasons why trade doesn’t help poor countries develop:
Poor countries are often dependent on low value, primary products for their export-earnings.
Value is added to primary commodities by rich countries.
The terms of trade are often biased against poor countries
Poor countries have been pressurized into exporting to clear their debts.
Poor countries export low value, primary products
According to Elwood (2004) three commodities accounted for 75% of total exports in the poorest 50 countries, but because of the declining value of such commodities, the developing nations need to export more and more every year just to stay in the same place. One developing nation leader described it as ‘running up the downward escalator’. For example, in 1960, the earnings from 25 tons of natural rubber would buy four tractors, today it would only buy one.
One example of a country which appears to be still dependent on the export of low value primary products is Malawi:
Malawi – dependent for most of its income on one primary agricultural product – Tobacco. (Source.)
However this may not apply to that many African countries today. According to data from Statista, while there is still a colonial legacy which affects African exports, more African countries have moved towards exporting oil and gas which are more profitable than the more traditional agricultural commodities.
Value is added to primary commodities by rich countries
Primary products such as cocoa, tea and coffee, sell for relatively low prices, so the farmers growing and selling such products make relatively little. However, once these products have been processed, branded and turned into the goods you see on the supermarket shelves, they can sell several times the original price. The problem (for developing countries) is that most of this processing and branding is done in the West. Thus, poor countries stay poor, and rich countries get rich.
With some commodities, there are several links in the chain of trade – take coffee for example – it goes from grower (in Ethiopia for example), to the local buyer, to the exporter, to the roaster (in Germany for example), to the supermarket and then to the consumer – 6 links in the chain. A bag of coffee might cost the consumer £2.50 in the supermarket, but the grower is lucky (very lucky) if they receive even 10% of this.
This infographic on the economics of coffee from Visualcapitalist shows shows how little poor farmers make from coffee compared to the end retailers. The breakdown is as follows:
growing – $0.07
exporting coffee – $0.16
Roasting – $0.35
distribution – $0.04
retail $2.17
total = $2.80
So the farmers growing the coffee get around 2% of the end price!
The terms of trade are often biased against poor countries
Western nations impose tariffs (import taxes) or quotas (simply limits on how much a country can import) on goods from the developing world, which seriously impairs the ability of poor countries to make money from exports.
At the same time as restricting imports from poorer countries, Western governments subsidize some of their own industries. This results in over-production in some sectors, which can result in cheap, subsidized Western goods being dumped on poor countries, which undermines local industries in poorer countries. This happened in Haiti in the early 1990s, when cheap, subsidized American rice was dumped on the Haitian market, forcing local rice farmers out of business (because the American rice was cheaper.
This 2015 video from Al Jazeera focuses on this issue in Kenya – Kenyan cotton farmers are finding it very difficult to compete with subsidized American cotton farmers. You get to see the large scale U.S. operation which is subsidized by the American government, who exports their cotton: the US is the largest cotton exporter in the world. And you also get to see how American cotton production contrasts with the much smaller scale nature of Kenyan cotton production, cotton which they cannot export because they cannot compete with the subsidized US cotton.
More recently, OXFAM has been concerned with the recent increase in bilateral ‘free trade’ agreements (FTAs). For example, in 2007, the EU singed FTAs with India which opened up Indian markets to the import of poultry and dairy products, despite the fact that 85% of demand is met locally by Indian farmers, and the introduction of big supermarket chains into the Indian marketplace.
In 2020 War on Want argued that aggressive new post-Brexit trade deals between the UK and Ghana hit Banana exporters in Ghana with £20 000 worth of tariffs a week, putting the livelihoods at risk.
Exporting to clear debts
The World Bank sees loans and debt as a ‘normal’ part of development, and poor countries are required to maintain repayments on (often low-interest) development loans to be eligible for more loans, thus keeping up repayments on loans is a crucial part of development for many countries.
Ellwood (2004) argued that this has resulted in the ‘social violence of the market’ – the constantly escalating pressure on farmers and workers in the developing world to produce more for less, which results in a problem called ‘immiserating trade’ – the more a developing country trades, the poorer it gets.
Conclusions
Marxists conclude that the terms of world trade are far from equal. Developing countries are very much junior partners in global trading relationships and are consequently exploited by more powerful countries, TNCs and their agents.
Signposting and Sources
This material is relevant to the Global Development module. This is an option in the second year of A-level sociology,
References
Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins. ISBN-10: 0007597495
The New Rulers of the World (2001) by John Pilger provides a good example of a Dependency Theory analysis of the consequences of neoliberal globalisation, focusing on Indonesia as a case study.
The fact that this is a dependency view of development is quite clear from John Pilger’s own summary of the documentary:
“There’s no difference between the quite ruthless intervention of international capital into foreign markets these days than there was in the old days, when they were backed up by gunboats…. The world is divided between the rich, who get richer, and the poor, who get poorer, and the rich get richer on the backs of the poor. That division hasn’t changed for about 500 years” (the link above will take you to this quote)
Below I provide a brief summary of the documentary. The documentary is 15 years old now, but it provides a very useful introduction to the following concepts within global development.
It provides an unambiguous example of a Dependency Theory analysis of underdevelopment in one country – Indonesia
It’s an especially useful analysis of neo-colonialism – how economic institutions now work to extract wealth from a poor country.
It introduces you to the role of the World Bank and the International Monetary Fund in an accessible way.
NB this documentary is now over 15 years old, so you might like to think about the extent to which it still applies to Indonesia 15 years on, and the extent to which you can generalise this analysis to other countries today.
(NB – the headings below are my own, not from the documentary)
John Pilger – The New Rulers of the World – intro section
In recent months, millions of people around the world have been protesting against a new economic order called globalisation.
Never before has the human race enjoyed such enormous capacity to create wealth and reduce poverty, but never before has inequality been so great.
A small group of individuals controls more wealth than the billion people in Africa, and just a handful of corporations dominate a quarter of the world’s economic activity – for example General Motors is now bigger than Denmark.
The famous brands of almost everything are now made in poor countries, with wages so low it borders on slave labour.
Tiger Woods is paid more money to promote Nike than the entire workforce in Indonesia are paid to make Nike products.
Is this the new global village we’re told is our future, or is this an old project, that used to be run by the divine right kings, but is now run by the divine right of corporations and the government s which back them?
This film is about the New Rulers of the World – and especially their impact on one country – Indonesia.
Indonesia –history/ background
Indonesia is where the old imperialism meets the new. This is a country which should not be poor as it is rich in natural resources such as oil and gold, copper, timber and the skills of its people.
It was first colonised by the Dutch in the 16th century, and plundered by the west for hundreds of years, a debt which is yet to paid back.
Pramoedayo Ananta Toer (ex political prisoner)
“For hundreds of years Indonesia and many other countries were sucked dry by the European countries, who became strong, and the masters of finance and commerce, and now they are dictated to by the World Bank and the IMF – Indonesia has been turned into a country of beggars because its elite is spineless.
George Monbiot (well-known environmentalist)
“We’re told that globalisation is going to bring us all together and help combat poverty but what we’ve actually seen is the opposite – the poor are becoming poorer, and the wealthy are becoming staggeringly wealthy”.
Rich and poor in Indonesia
The World Bank famously called Indonesia a ‘model pupil’, a success story of economic growth.
To illustrate this success the video now cuts to a lavish wedding between two merchant families – these are the elite who have reaped the benefits of globalisation –the freedom to earn money and let that money make more money.
However, Indonesia is also a very unequal country and only a relatively few people have benefited from this economic growth: 70 million people live in extreme poverty – and they’ve calculated that it would take one of the waiters working at the wedding 400 years to pay for such a wedding.
The lavish wedding is contrasted to an Indonesian labour camp less than 5 miles way where young people make the cheap consumer goods we consume in the west.
This is the backyard of global capitalism, the side we don’t see, the human price we pay for the cheap goods we buy. The average worker here gets £0.72 a day, the minimum wage in Indonesia, just over half a living wage (according to the government).
Dormitories are made from breeze blocks, they flood when it rains, and open sewers spread diseases which kill children.
The labour camp is set in an economic processing zone, which is basically a vast area of sweat shops.
Investigating Poor Working Conditions in Indonesia
The documentary crew posed as fashion buyers to gain access and secretly filmed in one factory, and also conducted dozens of interviews with workers in these factories.
Working conditions are claustrophobic, frenzied, the workers fatigued, and working under strip-lighting in temperatures of up to 40 degrees (the management however have air conditioned offices.
They also have horrendous working hours – which can be upped when deadlines for orders are due. The workers are typically young women and one worker is on camera saying that she once worked a 24 hour shift with no breaks. She says she is too scared to refuse or even question the working hours.
These factories are owned by Taiwanese and Korean contractors who take orders from companies such as GAP (whose products were made in the above factory where the workers are paid extremely low wages).
GAP has codes of conduct which are supposed to apply to working conditions globally, and GAP representatives do visit the factories, but the workers interviewed say they are warned by management to not tell them about forced overtime.
Dita Sari – Trade union leader
Points out that codes of conduct are meaningless in a country like Indonesia because there is high unemployment and terrible poverty, so the people are desperate enough to put up with dismal working conditions, and the government is unwilling to enforce the codes because they want Indonesia to be as attractive as possible to international companies (which means keeping labour cheap).
If you pay £8.00 for a pair of boxer shorts, then an Indonesian worker will receive approximately £0.04 pence of that.
In the previous year, the profits of gap were just short of £2 billion, and the CEO ‘earned’ £5 million, figures typical of many multinational companies.
For the sake of the documentary, they had to keep the factories anonymous, because the workers would have Victimisation from contractors and violence from anti-unionists.
Barry Coats – World Development Movement
We should aim to be better informed as consumers – when we buy something, we need to ask the company where it was produced and to give assurances that the workers are treated fairly.
The secret history of globalisation in Indonesia
President Suharto – The most corrupt leader in modern history, according to Transparency International, having embezzled an estimated $15-35 billion during his rule
In the 1960s General Suharto seized power in Indonesia secretly backed the United States and Britain.
Suharto removed from power the founder of modern Indonesia, Sukarno – a nationalist who believed in economic independence for the country. He had kept the Transnational Corporations and their agents, the World Bank, and the IMF, out of the country, but with Suharto coming to power they were called back in to ‘save’ Indonesia.
This regime change was one of the bloodiest mass murders in post WW2 history, with more than a million people estimated to have died in the process. Suharto took brutal steps to consolidate his power by rounding up thousands and thousands of civil servants, school teachers and basically anyone with communist leanings and murdering them.
He did this with the support of the CIA, who provided a list of 5000 people they wanted dead, and the British ambassador at the time suggested a little shooting was necessary to ease the transition, while British war ships played a supporting role in protecting Indonesian troops.
Within a year of Suharto’s coming to power the economy of Indonesia was effectively redesigned, giving the west access to vast natural resources, markets and cheap labour, what Nixon called ‘the greatest prize in Asia.
The American press reported these events not as a crime against humanity, but in terms of ‘The West’s best news for years’.
In 1967 – a conference in Switzerland planned the corporate take-over of Indonesia, with most of the world’s large international companies represented, such as ICI, General Motors and American Express. For western business this was the start of the gold rush which later became known as globalisation, and barely anyone mentioned the million dead Indonesians.
Professor Jeffrey Winters
Has never heard of a situation like this where global capital holds a meeting with the state and hammered out their interests. The conference lasted for three days – and the companies present hammered out policies which would be acceptable to them on a sector by sector basis. They basically designed the legal infrastructure for investment in the country.
It basically becomes clear from a series of interviews, despite their evasiveness, that the international business community new they were dealing with a nepotistic mass murderer.
Globalisation – the British arms connection
Globalisation began in the 1980s when Margaret Thatcher dismantled manufacturing and poured billions of pounds into building up the arms industry. Suharto was an important customer for the UK arms industry at that time, and sales to Indonesia were supported by ‘export credits’, in other words, a large part of Suharto’s arms bill was paid for by the British tax payer.
The Queen – entertaining the mass murderer and dictator general Suharto
So important was Suharto to British arms exporters, that he was welcomed to London by the Queen.
The World Bank and the IMF – The New Rulers of the World
Who are the new rulers of the world? Their empire today is greater than the British Empire ever was. Basically they are the World Bank, and the International Monetary Fund, two bodies which are the agents of the richest countries on earth, especially America.
Initially set up to help rebuild European economies after WW2, they later they began offering loans to poor countries, but only if they privatised their economies and allowed western companies free access to their raw materials and markets.
Barry Coates
Debt has been used by an instrument by the World Bank and IMF to get their policies implemented. The poorest countries are in a cycle of poverty, and current debt-reduction (not forgiveness) is not sufficient to allow them.
Susan George
The difference between Tanzania and Goldman Sachs
Tanzania – is a country with a GDP of $2.2 billion shared among 25 million, Goldman Sachs is an investment bank with profits $2.2 billion dollars shared among 162 partners.
The World Bank says its aim is to help poor people, calling this gobal development. It’s an ingenious system, a sort of socialism for the rich and capitalism for the poor – the rich get richer on running up debt, cheap labour and paying as little tax as possible, while the poor get poorer as their jobs and public services are cut to pay just the interest on the debt owed to the World Bank.
Here in Indonesia, the hand-outs to the rich have been extra-ordinary, internal documents from the World Bank confirm that up to a third of the banks loans went into – around $8 billion.
The 1998 Financial Crash, the End of Suharto and Indonesian Debt Repayment
Globalisation means that capital (big money) can be moved anywhere at any time, without warning.
In 1998 short-term capital was suddenly pulled out of Asia, collapsing the miracle economy overnight. This actually benefitted Nike in Indonesia, because they ended up labour costs were cut to 25% of what they had been previously.
With the economy collapsed, and Indonesia on the verge of revolution, Suharto was forced to step down, having already stolen an estimated $15 billion.
During his reign of more than 30 years, Suharto had handed out public utilities to his family and cronies, driving from Jakarta airport, you actually paid a toll to Suharto’s daughter.
Interview
The bank presents itself as an economic development agency, focusing on poverty reduction, but in fact, the bank operated during the entire cold war as an institution which distributed money to mainly authoritarian regimes in the third world that supported the West in the Cold War.
The Indonesian elite instigated many development projects with World Bank loans during Suharto’s 30 year reign, and many of them were seen as opportunities to skim money for themselves. In total, $10 billion remained unaccounted for out of $30 in loans. Of course the debt remained, and still had to be paid back to the World Bank.
According to the auditor general of the World Bank, if the citizens of Indonesia made a legal challenge against the World Bank over the remaining debt (given that they never received the money), the World Bank would be bankrupt, because this has gone on the world over.
Interview with Chief Economist of the World Bank – Nicholas Stone
In response to the question of how the World Bank didn’t realise that $10 billion of aid money to Indonesia had gone missing, his response was firstly to deny any knowledge of the $10 billion figure, then (on having been shown the World Bank’s own report) to say that figure was made up. He finally argued that progress had been made during Suharto’s regime if we look at literacy and infant mortality figures, even if the numbers in poverty had doubled from 30 million to 60 million.
When asked why there was such a silence over the atrocities of Suharto, he simply said the World Bank got it wrong, and they will get it wrong in the future too.
Dita Sari
Globalisation creates debts, creates misery, creates crisis, and creates privatisation, which pushes up the prices people have to pay for basic goods. In effect the money stolen by the Suharto regime is being paid back by the people who never benefited from that money.
Debt and the International Monetary Fund (IMF)
Every day nearly $100 million is transferred in debt repayments from the poorest countries to the richest, it is a debt that can never be paid back, given that half the world’s population live on less than $2 a day.
Interview with Stanley Fischer, from the International Monetary Fund
John Pliger asks whether debt cancellation should be a priority if we are to alleviate poverty, given that some countries spend half their GDP on debt repayments.
Fischer argues that we should not necessarily cancel their debt – we should rather look at the policies on education and health, and look at what sort of economies they run – do they integrate into the world economy, or do they run corrupt economies.
Fischer basically argues that countries need to repay their debts because they need to keep more resources flowing into their countries, and if they don’t repay them, they’ll never be leant to again. He sees debt as a ‘normal’ part of expanding enterprise and increasing economic growth.
NB – The subtext to the interview is that Western financial institutions depend on the debt repayments being kept up too.
Dita Sari
(In order to keep up debt-repayments) the government, as recommended by the IMF. has cut subsidies on electricity, water and education, which means that the workers have to pay more their children through school.
Now people now eat two meals rather than three meals a day.
Protests at the World Trade Organisation
Two years ago, protestors from all over the world converged on Seattle at a meeting of the World Trade Organisation….
Evaluation – How Valid are the Findings of this Documentary Today?
The documentary makes the following claims, all of which are worth investigating to see if they are still true today….
The rich are getting richer and the poor are getting poorer
200 Corporations control 25% of world economic activity
The World Bank and the IMF dictate economic policy to poor countries
These economic policies are shaped by the 200 (or so) largest global corporations and work in their interests, not in the interests of the majority of people in poor countries.
There is a small elite in poor countries which benefit from these economic policies and enforce them, against the interests of the majority.
I’ll provide a summary of the rest at a later date… In the meantime, you might like to actually watch the rest of it!
Core countries exploit those on the periphery in a global economic system.
World Systems Theory was developed by Immanuel Wallerstein in the late 1970s. He argued that a global economic system had developed consisting of three Zones: core, semi-periphery and periphery and that core countries (mainly those in the west) exploited peripheral countries (mainly those in the global south) working with international institutions such as the World Bank and IMF to do so.
Wallerstein built on the ideas of Dependency Theory but believed that it was no longer the case that individual nation states exploited other nation states through crude colonialism, rather a more complex global system had evolved.
Wallerstein accepts the fact ex-colonies are not doomed to be forever trapped in a state of dependency; it is possible for them to climb the economic ladder of development, as many of them have done. However, he also believes that the global capitalism system still requires some countries, or at least regions within countries to be poor so they can be exploited by the wealthy at the top.
Immanuel Wallerstein developed World Systems Theory.
A summary of Wallerstein’s World Systems Theory including the key ideas of Core, Semi-Periphery and Periphery countries, relevant to A Level Sociology Global Development Module.
World Systems Theory
Wallerstein’s theory has four underlying principles:
We now have a global economic system above the level of the nation state, which should be our level of analysis.
The modern world system is organised into core, semi-periphery and periphery nations.
Core nations exploit peripheral nations
Countries can be mobile, up or down the power structure in this system
Analyse the global system as a whole
One must look at the world system as a whole, rather than just at individual countries. Dependency Theory tended to argue that countries are poor because they used to be exploited by other countries. However focusing on countries (or governments/ nation states) is the wrong level of analysis.
Governments today have declined in power, whereas Corporations are more powerful than ever. Global Corporations, and global capital, transcend national boundaries, and nation states (even wealthy ones) are relatively powerless to control them, thus in order to understand why countries are rich or poor, we should be looking at global economic institutions and corporations rather than countries.
The Modern World System
Global Economic Institutions form what Wallerstein called a Modern World System (MWS) , and all countries, rich and poor alike are caught up in it.
Wallerstein believed that the MWS is characterised by an international division of labour consisting of a structured set of relations between three types of capitalist zone:
Core-Periphery and Semi Periphery Countries
The core, or developed countries control world wages and monopolise the production of manufactured goods.
The semi-peripheral zone includes countries like South Africa or Brazil which resemble the core in terms of their urban centres but also have areas of rural poverty which resemble the peripheral countries. The core contracts work out to these countries.
Finally, there are the peripheral countries at the bottom, mainly in Africa, which provide the raw materials such as cash crops to the core and semi periphery. These are also the emerging markets in which the core attempts to market their manufactured goods.
NB ‘countries’ are used to illustrate the three different zones above, but technically you could have all three zones within one country – China and India contain regions which fit the descriptors for each of the three zones.
Core countries exploit peripheral countries
The Modern World System is dynamic – core countries are constantly evolving new ways of extracting profit from poorer countries and regions. Three examples of new ways of extracting profit from poor countries include:
Unfair Trade Rules (we come back to this in the next topic) – World trade is not a level playing field – The best example of this is in Agriculture – Agriculture is Africa’s biggest economic sector. It has the capacity to produce a lot more food and export to Europe and America but it can’t because the EU and America spend billions every year subsidising their farmers so imported African products seem more expensive.
Western Corporations sometimes use their economic power to negotiate favourable tax deals in the developing world. A good case in point here is the mining Company Glencore in Zambia – The company recently arranged a long term contract to mine copper with the Zambian government – it exports $6 billion a year in copper from Zambia, but pays only $50m in tax, while as part of the deal the Zambian government is contractually obliged to pay for all the electricity costs of mining – a total of $150m a year.
Land Grabs – These are currently happening all over Africa – Where a western government or company buys up thousands of hectares of land in Africa with the intention of planting it with food or biofule crops for export back to western markets. In such cases the western companies take advantage of the cheap land and gain much more than the African nations selling the land in the long term. In some case studies of land grabs thousands of indigenous peoples are displaced.
Countries can move up or down
Countries can be upwardly or downwardly mobile in the world system. This is one of the key differences between World System’s Theory and Frank’s Dependency Theory. Many countries, such as the BRIC nations have moved up from being peripheral countries to semi-peripheral countries. However, most countries do not move up and stay peripheral, and the ex-colonial powers (the wealthy European countries) are very unlikely to slip down the global order.
Evaluating World Systems Theory
There are more causes of underdevelopment than just economic dominance through Capitalism, such as cultural factors, corruption and ethnic conflict. There are other ways people can be exploited and oppressed – such as tyrannical religious regimes for example.
Some areas are still not included in the World System – some tribal peoples in South America and Bhutan for example remain relatively unaffected by global capitalism.
Wallerstein’s concepts of Core, Semi-Periphery and Periphery are vague and this means his theory is difficult to test in practise.
Signposting and Related Posts
This material is mainly relevant to the Global Development option taught as part of the second year in A-level sociology.
World systems theory is a response to the criticisms of Dependency Theory (and for the purposes of the exam can still be treated as part of Dependency Theory).
NB This is very much a summary designed to get an 18 year old through an exam, so may not suit higher level students.
The plan below is just one suggestion as to how you might go about answering this essay.
Briefly introduce Dependency Theory
Dependency theory is a Marxist theory, developed in the 1970s as a criticism of Modernisation theory. The best known dependency theorist is Andre Gunder Frank
Underdevelopment is because the West exploits labour and resources in the developing world. The West gets rich at the expense of the developing world. This is in contrast with the modernisation theory which tends to assume that lack of development is because of internal cultural and economic barriers.
Dependency theorists see history as essential to understanding the situation that we are in today, pointing out that many civilizations were wealthy and complex before contact with the west –such as Aztec culture in Mexico and Chinese and Indian civilizations. It is only after Colonialism that these countries become poor relative to the West.
During Colonial Rule the core nations of the west exploited the satellite nations of the developing world.
More recently Neo-Colonialism keeps developing countries poor –
The Legacy of Colonialism
Colonialism – Where European Nations (core nations) took over other territories and turned them into satellite nations, essentially becoming the property of those nations and being subject to their laws.
Colonies were then run for the benefit of the core nations, with resources such as gold, silver and exotic foods being extracted from the colonies and exported to the west for immense profit. Local populations were often turned into slaves and controlled by occupying military forces.
This process locked much of Africa, Asia and Latin America into exploitative relationships with Western European Nations from about 1650 – 1900.
When ex-colonies gained independence from their Colonial masters (in Africa through the 1960s) they struggled to develop because of the damage done to them by Colonial rule. Two ways in which this happened are as follows:
Colonial powers turned the colonies into ‘monocultures’ – each country was used to grow and export only one or two products that were best suited to that climate. This has had a lasting consequences – Today, at least two thirds of African countries derive over 50% of their export earnings from only one or two commodities. Today, many African countries are still dependent on low value exports for much of their GDP which prevents them from developing.
Divisions and conflicts between ethnic groups were created during colonialism as those tribes loyal to the colonising powers were given economic and political power. It tended to be those tribes that came to power following independence, causing heightened tension between them and opposing ethnic groups. The worst case of this is the Rwandan Genocide of the 1990s.
Neo-colonialism
According to dependency theorists although colonies have gained political independence, they are still exploited economically by more developed countries – a situation which Frank describes as Neo-Colonialism. Neo-Colonialism takes the following forms
Unfair Trade Rules World trade is not a level playing field – The best example of this is in Agriculture – Agriculture is Africa’s biggest economic sector. It has the capacity to produce a lot more food and export to Europe and America but it can’t because the EU and America spend billions every year subsidising their farmers so imported African products seem more expensive
Tied Aid – Aid packages from the World Bank often come with strings attached – In return for a development loan, for example, a country might be asked to privatise certain sectors and allow Western companies in to run those services, ultimately benefitting western interests.
Western Corporations use their economic power to negotiate favourable tax deals in the developing world. A good case in point here is the mining Company Glencore in Zambia – The company recently arranged a long term contract to mine copper with the Zambian government – it exports $6 billion a year in copper from Zambia, but pays only $50m in tax, while as part of the deal the Zambian government is contractually obliged to pay for all the electricity costs of mining – a total of $150m a year.
STRATEGIES FOR DEVELOPMENT
For some dependency theorists, underdevelopment appears permanent; the only way out of dependency is for an underdeveloped nation to escape from the global capitalist system and master-servant relationship with richer countries, taking action itself rather than relying on outside help. Countries need to find alternative pathways to development that protect their fragile economies from Western Capitalist-Industrialist Capitalism. Some alternatives include:
Isolation, as in the example of China from about 1960 to 2000, which is now successfully emerging as a global economic superpower having isolated itself from the West for the past 4 decades. Another, different example, is that of Bhutan.
Socialist revolution as in the case of Cuba. This resulted in sanctions being applies by America which limited trade with the country, holding its development back.
Alternatively there is Associate or dependent development. – Here, one can be part of the system, and adopt national economic policies to being about economic growth such as. Import substitution industrialisation where industrialisation produces consumer goods that would normally be imported from abroad, as successfully adopted by many South American countries.
Evaluation
Some countries benefited from Colonialism – India for example benefitted from the transport networks put in place under British Colonial Rule, whereas many countries that were never colonised, such as Afghanistan, are much less developed.
Modernisation theory would argue that at least some satellite nations have benefited from TNC investment, as with the Asian Tiger economies such as Korea benefited from investment by Japanese TNCs.
Neoliberalism points out that it would be wrong to purely blame western TNCs for the dependency of Satellite Nations. Corrupt governments are just as much to blame today.
Paul Collier’s theory of the bottom billion suggests there are more reasons other than
Colonialism that explain why certain countries are underdeveloped. Two of these include the ‘resource curse’ and ‘corruption’
Conclusion
It is important to recognise that the history of colonialism has held some countries back, and that isolation has worked as a route to development for some nations such as China. However, in today’s rapidly changing, ex-colonial world, in which many ex-colonies are developing successfully and even due to overtake European Nations by 2050 (India and Brazil) it is clear that in the long term Dependency Theory is not sufficient to explain why some countries are developed and others are developing.
Having said this it does need to be recognised that in many countries neo-colonialism does seem to prevent development, and the idea that the west needs to look at how its policies affect developing countries is also sensible. and moreover it is unclear that this model of development which defines development as being characterised by industrialisation, strong nation states, and economic growth is applicable today – It might be the case that alternative models and notions of development are the only way to guarantee the long term sustainable future of the 7 billion people on earth today
Dependency Theorists argue that rich countries accumulated their wealth through exploiting poorer countries. Initially this was through colonialism and slavery, later on through neo-colonialism. To develop, poorer countries need to break free from these exploitative relations.
This post is a brief summary of the Dependency Theory view of Development and Underdevelopment. It is, broadly speaking, a Marxist theory of development.
Andre Gunder Frank (1971), one of the main theorists within ‘dependency theory’ argued that developing nations have failed to develop not because of ‘internal barriers to development’ as modernisation theorists argue, but because the developed West has systematically underdeveloped them, keeping them in a state of dependency (hence ‘dependency theory’).
Dependency Theory is one of the major theories within the Global Development module, typically taught in the second year of A-level sociology.
The World Capitalist System
Frank argued that a world capitalist system emerged in the 16th century which progressively locked Latin America, Asia and Africa into an unequal and exploitative relationship with the more powerful European nations.
This world Capitalist system is organised as an interlocking chain: at one end are the wealthy ‘metropolis’ or ‘core’ nations (European nations), and at the other are the undeveloped ‘satellite’ or ‘periphery’ nations. The core nations are able to exploit the peripheral nations because of their superior economic and military power.
From Frank’s dependency perspective, world history from 1500 to the 1960s is best understood as a process whereby wealthier European nations accumulated enormous wealth through extracting natural resources from the developing world, the profits of which paid for their industrialisation and economic and social development, while the developing countries were made destitute in the process.
Writing in the late 1960s, Frank argued that the developed nations had a vested interest in keeping poor countries in a state of underdevelopment so they could continue to benefit from their economic weakness – desperate countries are prepared to sell raw materials for a cheaper price, and the workers will work for less than people in more economically powerful countries. According to Frank, developed nations actually fear the development of poorer countries because their development threatens the dominance and prosperity of the West.
Colonialism, Slavery and Dependency
Colonialism is a process through which a more powerful nation takes control of another territory, settles it, takes political control of that territory and exploits its resources for its own benefit. Under colonial rule, colonies are effectively seen as part of the mother country and are not viewed as independent entities in their own right. Colonialism is fundamentally tied up with the process of ‘Empire building’ or ‘Imperialism’.
According to Frank the main period of colonial expansion was from 1650 to 1900 when European powers, with Britain to the fore, used their superior naval and military technology to conquer and colonise most of the rest of the world.
During this 250 year period the European ‘metropolis’ powers basically saw the rest of the world as a place from which to extract resources and thus wealth. In some regions extraction took the simple form of mining precious metals or resources – in the early days of colonialism, for example, the Portuguese and Spanish extracted huge volumes of gold and silver from colonies in South America, and later on, as the industrial revolution took off in Europe, Belgium profited hugely from extracting rubber (for car tyres) from its colony in DRC, and the United Kingdom profited from oil reserves in what is now Saudi Arabia.
In other parts of the world (where there were no raw materials to be mined), the European colonial powers established plantations on their colonies, with each colony producing different agricultural products for export back to the ‘mother land’. As colonialism evolved, different colonies came to specialise in the production of different raw materials (dependent on climate) – Bananas and Sugar Cane from the Caribbean, Cocoa (and of course slaves) from West Africa, Coffee from East Africa, Tea from India, and spices such as Nutmeg from Indonesia.
All of this resulted in huge social changes in the colonial regions: in order to set up their plantations and extract resources the colonial powers had to establish local systems of government in order to organise labour and keep social order – sometimes brute force was used to do this, but a more efficient tactic was to employ willing natives to run local government on behalf of the colonial powers, rewarding them with money and status for keeping the peace and the resources flowing out of the colonial territory and back to the mother country.
Dependency Theorists argue that such policies enhanced divisions between ethnic groups and sowed the seeds of ethnic conflict in years to come, following independence from colonial rule. In Rwanda for example, the Belgians made the minority Tutsis into the ruling elite, giving them power over the majority Hutus. Before colonial rule there was very little tension between these two groups, but tensions progressively increased once the Belgians defined the Tutsis as politically superior. Following independence it was this ethnic division which went on to fuel the Rwandan Genocide of the 1990s.
An unequal and dependent relationship
What is often forgotten in world history is the fact that before colonialism started, there were a number of well-functioning political and economic systems around the globe, most of them based on small-scale subsistence farming. 400 years of colonialism brought all that to end.
Colonialism destroyed local economies which were self-sufficient and independent and replaced them with plantation mono-crop economies which were geared up to export one product to the mother country. This meant that whole populations had effectively gone from growing their own food and producing their own goods, to earning wages from growing and harvesting sugar, tea, or coffee for export back to Europe.
As a result of this some colonies actually became dependent on their colonial masters for food imports, which of course resulted in even more profit for the colonial powers as this food had to be purchased with the scant wages earnt by the colonies.
The wealth which flowed from Latin America, Asia and Africa into the European countries provided the funds to kick start the industrial revolution, which enabled European countries to start producing higher value, manufactured goods for export which further accelerated the wealth generating capacity of the colonial powers, and lead to increasing inequality between Europe and the rest of the world.
The products manufactured through industrialisation eventually made their way into the markets of developing countries, which further undermined local economies, as well as the capacity for these countries to develop on their own terms. A good example of this is in India in the 1930s-40s where cheap imports of textiles manufactured in Britain undermined local hand-weaving industries. It was precisely this process that Ghandi resisted as the leading figure of the Indian Independence movement.
Colonialism: An Unequal and Dependent Relationship!
Neo-colonialism
By the 1960s most colonies had achieved their independence, but European nations continued to see developing countries as sources of cheap raw materials and labour and, according to Dependency Theory, they had no interest in developing them because they continued to benefit from their poverty.
Exploitation continued via neo-colonialism – which describes a situation where European powers no longer have direct political control over countries in Latin America, Asia and Africa, but they continue to exploit them economically in more subtle ways.
Three main types of neo-colonialism:
Frank identified three main types:
Firstly, the terms of trade continue to benefit Western interests. Following colonialism, many of the ex-colonies were dependent for their export earnings on primary products, mostly agricultural cash crops such as Coffee or Tea which have very little value in themselves – It is the processing of those raw materials which adds value to them, and the processing takes place mainly in the West
Second, Frank highlights the increasing dominance of Transnational Corporations in exploiting labour and resources in poor countries – because these companies are globally mobile, they are able to make poor countries compete in a ‘race to the bottom’ in which they offer lower and lower wages to attract the company, which does not promote development.
Finally, Frank argues that Western aid money is another means whereby rich countries continue to exploit poor countries and keep them dependent on them – aid is, in fact, often in the term of loans, which come with conditions attached, such as requiring that poor countries open up their markets to Western corporations.
Dependency Theory: Strategies for Development
Dependency is not just a phase, but rather a permanent position. The historical colonialists and now the neo-colonialists continually try to keep poor countries poor so they can continue to extract their resources and benefit from their cheap labour, thus keeping themselves wealthy on the back of exploitation.
It thus follows that the only way developing countries can escape dependency is to break away from their historical oppressors.
There are different paths to development with differing emphasis on the extent to which developing countries need to become independent of their historical colonial masters, their neo-colonial ‘partners’ or from the entire global capitalist system itself!
Isolation, as in the example of China from about 1960 to 2000, which is now successfully emerging as a global economic superpower having isolated itself from the West for the past 4 decades.
A second solution is to break away at a time when the metropolis country is weak, as India did in Britain in the 1950s, following world war 2. India is now a rising economic power.
Thirdly, there is socialist revolution as in the case of Cuba. This, however, resulted in sanctions being applies by America which limited trade with the country, holding its development back.
Many leaders in African countries adopted dependency theory, arguing that and developing political movements that aimed to liberate Africa from western exploitation, stressing nationalism rather than neo-colonialism.
Associate or dependent development – here, one can be part of the system, and adopt national economic policies to being about economic growth such as
Import substitution industrialisation where industrialisation produces consumer goods that would normally be imported from abroad, as successfully adopted by many South American countries. The biggest failure of this, however, was that it did not address inequalities within the countries. ISI was controlled by elites, and these policies lead to economic growth while increasing inequality.
Criticisms of Dependency Theory
Some countries appear to have benefited from Colonialism – Goldethorpe (1975) pointed out that those countries that had been colonised at least have the benefits of good transport and communication networks, such as India, whereas many countries that were never colonised, such as Ethiopia, are much less developed.
Colonialism did not prevent India from developing
Modernisation theorists would argue against the view that Isolation and communist revolution is an effective path to development, given the well-known failings of communism in Russia and Eastern Europe. They would also point out that many developing countries have benefitted from Aid-for Development programmes run by western governments, and that those countries which have adopted Capitalist models of development since World War Two have developed at a faster rate than those that pursued communism.
Neoliberalists would argue that it is mainly internal factors that lead to underdevelopment, not exploitation – They argue that it is corruption within governments (poor governance) that is mainly to blame for the lack of development in many African countries. According to Neoliberals what Africa needs is less isolation and more Capitalism.
Paul Collier’s theory of the bottom billion. He argues that the causes of underdevelopment cannot be reduced to a history of exploitation. He argues that factors such as civil wars, ethnic tensions and being land-locked with poor neighbours are correlated with underdevelopment.
World Systems Theory – kind of an updated version of dependency theory which is focussed more on the global system rather than country-country relationships.
The New Rulers of the World – summary of the documentary by John Pilger, which seems to be a pretty unambiguous dependency theory perspective on the role of the World Bank, the IMF, and Transnational Corporations in globalisation. The video focuses especially on their role in underdevelopment in Indonesia.
Sources/ Find out More
This Wikipedia article on Andre Gunder Frank provides a brief summary of his theory and links to his main publications.
